I began analyzing the financial markets in 1982 when I became the research director for a financial advisory firm and provided regular market analysis on stocks, commodities, currencies and mutual funds. I am a technical analyst. Much of my focus was on how obscure technical indicators or methods, could be applied to the financial markets and used as an effective trading tool. Many of the indicators I have used for years, such as Gerry Appell's MACD and Welles Wilder's RSI, have subsequently gained wide popularity.

This page is devoted to sharing my insights and techniques in order to help you become a smarter trader/investor. Over the past twenty years I have traveled around the world several times, visiting all of the major financial centers as he taught professional traders and money managers my approach to the financial markets.

My method of stock selection starts with a proprietary scanning method to select a group of individual stocks for more extensive analysis. This includes an in-depth study of the volume patterns that I use to determine the strength of a stock's trend. Those with the strongest trend, either up or down, are then further analyzed to determine entry, exit and risk levels. I use Fibonacci retracement, projection and extension analysis to determine both profit objectives as well as stops.

10/06/2012 @ 8:28PM2,450 views

October's Top Seasonal Sectors

The seasonal analysis indicates that five sectors or industry groups typically bottom in October, and the stocks in these sectors are good candidates to be market leaders going into the end of the year, writes MoneyShow’s Tom Aspray.

Over the past 20 years, October has been a pretty good month for stocks, with an average gain of 1.8%. According to Bespoke Investments, during this time period it is ranked third.

However, if you instead look at the past 40 years, October has averaged only a 0.58% gain. October still has a bad reputation due to the 1929 crash and the 22.56% drop in October 1987. The worst stretch during the 2008-2009 bear market also came in October.

The current environment does not look ready for an October crash…unless war breaks out in the Middle East, which could be enough to trigger a crash-like wave of selling.

There are several key sectors and industry groups that have a tendency to bottom in October, and most continue to move higher into the following year. As I have mentioned in previous articles, one needs to combine the long-term seasonal patterns with the technical signs to determine that the sector has become a market leader.

The seasonal low in gold coincided nicely with the technical readings, and the rally in gold caught many flat-footed, as they started to buy only after gold had already risen 10%. When the seasonal and technical signals agree, stocks in the sector can really take off. Let’s look at the best bets for October.

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The technology sector, led by Apple (AAPL), has had a good past few months. The Select Sector SPDR Technology (XLK) was up 7.6% in the third quarter, which was more than 1% better than the Spyder Trust (SPY).

The seasonal chart shows that XLK typically bottoms on October 5 and rallies until early in the following year. It typically forms a secondary high in late April, but in 2012 it peaked early.

The semiconductor group is one segment of the technology sector that that also bottoms in October. The chart of the Philadelphia Semiconductor Index ($SOXX) shows that since 1995, it also typically formed an initial bottom on October 5, with a secondary low at the end of October.

The $SOXX typically tops on April 27, then declines until October. The chart also shows a minor rally in the early part of August, which did occur this year (see circle).

The weekly chart of the Select Sector SPDR Technology (XLK) shows that it formed complex bottoms in both the summer of 2010 and 2011 that led to quite impressive rallies. XLK rallied 35.4% from low to high in 2010, and 36% from the October 2011 low to the March 2012 high.

From the low in June 2012 to the September high of $31.72, XLK was up 17.4%. A 35% rally from the June lows would take XLK up to $36.50.

The current chart shows that the recent pullback is holding above the high from March (line a). There is further support now at $28.50 to $30.

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The correction into June fell right in the middle of the 38.2% to 50% Fibonacci support zone, which set up a low-risk buying opportunity last June. The weekly relative performance or RS analysis did confirm the March highs, which was a positive sign, as it did not start a new downtrend going into the June lows.

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